Judges rule on contractor dispute over new FBI headquarters

The Indiana Court of Appeals reversed the denial of a general contractor’s motion to stay proceedings and compel arbitration regarding disputes with subcontractors, finding general contractor Welty Building Co. LTD did not waive its right to insist upon arbitration.

Welty was chosen as general contractor to construct the new FBI headquarters in Indianapolis. The building would be owned by Indy Fedreau Company LLC, and Ohio Farmers Insurance Co. provided a contract performance bond on Welty’s behalf. Welty hired 21 subcontractors to work on the project. Their agreements included an arbitration clause. But Indy Fedreau filed a lawsuit against Welty and OFIC in November 2011 alleging breach of contract, breach of bond, fraud and bad faith based on claims Welty ran up the costs of the project. Indy Fedreau also believed that Welty wasn’t timely paying the subcontractors, which resulted in mechanic’s liens. Several subcontractors also sued Welty.

Welty later filed a counterclaim in the Fedreau case, seeking to foreclose its own mechanic’s lien on the property. It joined the subcontractors with respect to the mechanic’s lien notices they had filed. This led to counterclaims being filed against Welty by the subcontractors. Welty and OFIC then sought to stay the subcontractors’ claims pending mediation and arbitration, which was denied. The trial court agreed with the subcontractors that Welty had waived its contractual right to insist upon arbitration.

“It is clear that Welty did not ‘elect’ to sue the subcontractors without first engaging in mediation or arbitration, nor did it voluntarily ‘institute’ a legal proceeding, to use the language of Article 37 of the subcontract. Welty’s hand was forced by Fedreau’s filing of the lawsuit against it, at which time Welty was compelled to countersue for foreclosure of its mechanic’s lien and to name the subcontractors as co-defendants on that claim,” Judge Michael Barnes wrote in Welty Building Co., LTD. and, Ohio Farmers Insurance Company v. Indy Fedreau Company, LLC, et al., 49A02-1206-PL-493.

The judges sent the case back to the trial court so that arbitration can be ordered between Welty and the subcontractors and that the litigation between those parties be stayed. The trial court did not assess whether the subcontractors’ claims against OFIC should be stayed pending arbitration, so the judges ordered the trial court to consider that issue.